Microsoft’s (MSFT: Charts, News, Offers) Bing search engine, the tech titan’s answer to Google’s (GOOG: Charts, News, Offers) massive search engine, gained for the eighth month in tn a row, finishing March with 13.9% of all U.S. queries, a slightly improvement over its the 13.6% it reported in February. This gain, however, was not indicative of Google’s decline – in March, Google’s share increased to 65.7% from 65.4%, while long suffering Yahoo (YHOO: Charts, News, Offers) slipped from 16.1% to 15.7%. The trend is clear – Bing is on track to overtake Yahoo to become the second largest search engine in the United States. With the sales of Windows Mobile 7 phones being boosted by its newly forged partnership with Nokia (NOK: Charts, News, Offers), the Bing search engine could evolve into a viable competitor to Google, or at the very least, serve as a moat to protect Microsoft’s core business of software applications. While Microsoft’s efforts to coin “Bing” as a verb in television shows and movies have been fodder for tech blog mockery, the company finally seems to be getting its business segments organized and streamlined.
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It’s clear that pressure from Google, which now has nearly the same market cap as Microsoft, was the catalyst that sparked Microsoft’s current scramble to maintain its relevance as a software manufacturer. Microsoft currently earns its revenue from four main segments – Windows (28%), Servers and Tools for IT Services (24%), Business Software (30%) and Entertainment Hardware (13%). Its Windows division is the former cash cow – which is currently led by Windows 7, a widely well-received operating system which followed the lambasted Windows Vista. Its Servers and Tools division produces Windows Server and Visual Studio suites. The Business Software division produces the company’s Microsoft Office and related products. The Entertainment segment produces the XBOX360, video games, the Zune media player and GPS software.
Many of the company’s software segments are directly under assault from Google and Salesforce (CRM: Charts, News, Offers), the pioneers of cloud computing, in which software is launched as a service from the Internet, rather than from a remote installation on a home computer. Google has launched the Chrome OS, Chrome browser and Google Docs to attack Microsoft’s Windows 7, Internet Explorer and Microsoft Office, respectively. While Google is launching the assault to defend and expand its core search business, its attacks strike deep into Microsoft’s heart. Microsoft’s Bing search engine started as a weak retaliatory effort against Google, but has since evolved into a solid search engine praised for its ease of use and thorough search capabilities. Google has openly accused Microsoft of stealing Google search results and algorithms to boost its own results. Last October, Microsoft also enhanced Bing by partnering with Facebook, in which the company is heavily invested, to launch personalized search results based on friends’ Facebook “liked” results. There is also a persistent rumor of an upcoming Facebook-Microsoft e-mail service designed to replace the company’s Hotmail service to offer the world’s first social networking web mail service.
Looking forward, Microsoft faces significant risks from piracy, in its Windows, Office and XBOX360 software segments. The company reportedly loses $18 billion USD on pirated copies of Windows annually. In China, over 90% of Windows copies are pirated, and despite having the ability to remotely shut down pirated copies, Microsoft has elected to simply disable several aspects of the operating system, such as Windows Update, which has encouraged hackers to find workarounds and patches to continue running the pirated copies. In addition, Microsoft is still a massive target for antitrust lawsuits due to its dominance of the personal computer operating system arena – it was fined multiple times by the European Union in 2004, 2006 and 2008, which have cost the company over $2 billion USD.
However, Microsoft has several significant advantages over Google and its other competitors. The company currently controls 90% of the personal computing operating system market, 32% of the mobile operating system market, and 28% of the American video game market. Unifying all of these systems together under a single banner, such as Windows or XBOX Live, would increase adoption of multiple Microsoft-powered devices as well as offer software developers to develop for Microsoft platforms in order to reach the largest amount of customers. The company currently trades with a P/E of 10.9, nearly half the industry average of 19.8, and has long been considered a deep value stock for patient investors.
Other News About MSFT
Search marketing could be set for changes as Bing catches up with Google
Could people finally start to “Bing” it?
Microsoft sends Nokia spy cars to peek into your Windows
Microsoft lays out the groundwork for its answer to Google Maps.
Other Stocks in the News
Baidu vs. Yahoo: Sell the Bubble, Buy the Bargain
Is Yahoo a bargain?
Is Yahoo a Hidden Gem?
As search slips again, should investors invest in this fallen stock?
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Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
